The recent US energy production explosion, efficiency gains, climate strategy and related energy policies are converging to create an intricate and rapidly-evolving set of issues that business leaders, regulators, academic professionals and students will address in New York next week at the 37th International Association for Energy Economics International Conference.
In advance of the meeting, Breaking Energy caught up with US Association for Energy Economics’ – the IAEE’s domestic arm – president Michael Canes to get his views on the energy industry’s most pressing issues and challenges.
“In view of recent world events, I see U.S. oil and natural gas production and consumption as taking on more strategic significance than ever. What the U.S. does with regard to these commodities matters geopolitically. Thus, I try to stay current on their trends and what might be expected over the next several years. Naturally, I’m also interested in policy trends that affect these two commodities,” Canes told Breaking Energy.
“I’m also interested in how energy efficient we are becoming as a nation over time. Proper measurement of energy efficiency itself can be a difficult subject, but a basic picture can be obtained simply by looking at the trend in BTUs of energy consumed per dollar of GDP produced. EIA publishes annual data on this metric, which shows surprisingly high rates of improvement at some times and not so high ones at others,” he added.
Along with the significant increases in US oil and natural gas production – driven by shale resource extraction technology, market dynamics and other factors – that caught many industry players and observers off guard, an energy commodity export discussion has emerged. And while that sometimes heated export debate often focuses on domestic business and economic impacts, there are also considerable implications for overseas markets, producers and consumers.
“This is a complicated topic for several reasons,” said Canes. “First, as I noted, U.S. oil production and consumption have increasingly taken on strategic aspects, so the impacts on overseas markets should be central to our thinking. However, these impacts are diverse, some of them perhaps welcome and others not. For example, we can posit that (rising) U.S. crude oil exports would impose downward pressure on world oil prices, which in turn would adversely affect the economies of Russia, Iran and Venezuela, countries that currently are not altogether friendly towards the U.S. However, such downward pressure also would adversely affect Canada, Norway and other allies of the U.S. Where the balance lies requires careful analysis,” he explained.
“There’s also the question of what we should expect OPEC to do as a group in response to rising U.S. crude exports. They have shown some ability in the past to reign in their collective exports as world demand shrinks. That group of producers might act differently than those who are not in OPEC and the cohesion of the group might be challenged, but we should try to understand what might happen and be prepared if we see untoward potential consequences, e.g., rising social unrest in relatively friendly member countries,” Canes added.
Unilateral Climate Change Action Could Backfire
Climate change mitigation strategy has also risen to the top of the US energy policy agenda, with the Obama administration prioritizing action via EPA power plant regulation. As such, many economists are analyzing potential impacts associated with putting some form of a price on carbon emissions, something several major energy companies already bake into their long-term strategies. Canes see US climate policy as an area that needs improvement.
“I regard U.S. climate policy as poorly conceived and flailing at this point. We are trying to act unilaterally when the problem clearly is international in scope and must be conceived and dealt with in that way,” he said. “Imposing EPA regulation on coal-generated power producers or even imposing a nationwide carbon tax seems entirely premature to me. We have no idea what the reaction of others to such policies is likely to be, though I’d guess the common assumption is that they will respond favorably. But this is by no means assured. We could just as well assume that if we act unilaterally, others are less likely to act than otherwise. My guess is that this is the case, but I do not profess to be sure,” Canes offered.
“The point is that we have to conceive of the problem as international in scope and develop a strategy and tactics to deal with it in that way. Unless and until we do so, we are wasting time and perhaps even exacerbating the problem beyond what it otherwise would be.”
Subsidies: Easy to Giveth and Difficult to Takeaway
Many countries face challenges when dealing with energy subsidies, whether it be funding run-away subsidy programs that swell in cost along with population growth, or picking winners as many accuse US policy of doing.
“I’m personally disturbed by the proliferation of government subsidies given to various energy sources. These subsidies seem to occur across the board, so I’m not trying to single out any particular energy source. All of them are subsidized to one degree or another, and to me a good part of the money is simply wasted,” suggested Canes.
“Now, I believe I understand the politics behind energy subsidies. It’s much easier to give out federal or state monies to encourage favored energy sources than it is to tax non-favored sources to discourage their production or consumption,” he said.
“Over the years, just about every energy source has been favored at one time or another, and once subsidies are in place, it’s almost impossible to remove them. So, we have old subsidies, newer ones, and proposals for more. However, the effect is to throw public monies at one form of energy after another, often with poor results, and just keep doing so. To me, this is important but I admit it’s a very difficult problem to deal with.”
All these issues and many more will be discussed at next week’s IAEE International Conference, so keep reading Breaking Energy for coverage from the event.
The views expressed by Dr. Michael Canes, the current President of USAEE, are his own and do not represent those of the Association.
Breaking Energy is a long-time media partner for the IAEE/USAEE’s annual conferences.
